The yen fluctuated near the closely-watched 145 per dollar level Wednesday after an overnight slide on increased bets of Federal Reserve rate hikes sparked further verbal intervention from Japan.
(Bloomberg) — The yen fluctuated near the closely-watched 145 per dollar level Wednesday after an overnight slide on increased bets of Federal Reserve rate hikes sparked further verbal intervention from Japan.
The currency weakened almost 0.3% to 144.96 against the dollar early in the Asian session before reversing losses to trade 0.2% higher. Finance Minister Shunichi Suzuki said Japan wouldn’t rule out any response if current trends in the FX market continued and its options included intervention.
A break of 145 would bring 146.78 into play, the level reached before a joint Japan-US intervention to support the yen back in 1998.
Suzuki’s comments followed a renewed hint by the country’s top chief currency official that direct intervention was a possible response to foreign-exchange weakness.
“We’re concerned that the recent foreign exchange moves are very sudden,” Masato Kanda told reporters Wednesday. “We’ll monitor the situation with a sense of urgency, and respond appropriately without ruling out any options.”
Japanese authorities have been stepping up verbal warnings as the yen has fallen but these have failed to turn the tide against dollar strength. While Japan’s currency steadied somewhat after BOJ Governor Haruhiko Kuroda expressed concern over rapid yen selling last week following a meeting with Prime Minister Fumio Kishida, the gain was short-lived.
On Wednesday, the BOJ boosted its scheduled bond purchases once more with Japan’s benchmark 10-year yield approaching the 0.25% upper limit of the central bank’s tolerated range.
The timing of Kanda’s comments “is a bit awkward and the impact may be a bit weak, coming amid the broad dollar strength after the strong CPI,” said David Lu, director at NBC Financial Markets Asia in Hong Kong. “It’s difficult to expect dollar-yen to ease back to 140 on verbal intervention in an all-out dollar rise situation.”
The impact of the stronger dollar wasn’t just confined to Japan, with officials across Asia busy trying to bolster their currencies. A tumble in South Korea’s won sparked comments from officials there that they were closely monitoring markets. China extended its currency defense by setting its reference rate for the yuan with the strongest bias on record.
Japan’s currency has tumbled more than 20% versus the greenback this year due to widening policy differentials between the two nations. Tuesday’s US inflation data reinforced bets the Fed will raise its benchmark by 75 basis points at this month’s policy meeting, while the BOJ is forecast to keep rates on hold at the end of its September gathering.
“Speculation will continue and volatility will remain high until the Fed meeting next week,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “While the BOJ will continue to send warning signals on the yen’s rapid weakness at its meeting, it is very unlikely it will change policy in response to the yen’s weakness.”
That leaves any action from Tokyo in the hands of the finance ministry. Japanese officials’ language on recent yen moves is approaching the wording used before they directly intervened in the currency market in the past.
Options traders are beginning to look for protection against possible action from Japan. One-month risk-reversals for dollar-yen — a gauge of expected direction for the currency pair over that time frame — point to near-term downside.
Still, economists, including Minami, say the chance for intervention is low. While Japan has more firepower in its foreign exchange reserves to prop up the yen than it did in 1998, analysts see little chance of Tokyo being able to turn the trend through intervention without US help.
Japan’s $1.2 Trillion Buffer May Not Scare Yen Bears Without US
“We recently saw a concerted effort from the BOJ, MOF and government to jawbone the yen but with limited success,” said Matt Simpson, senior market analyst at at City Index in Sydney. “Part of that success could be attributed to a weaker dollar. With expectations of higher Fed rates and widening yield differentials in favor of the dollar, it could make further jawboning efforts feel like they’re shouting into the wind.”
(Updates with finance minster comments.)
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